2023 (12) TMI 973 - AT - Income Tax

Validity of final assessment order based on draft assessment order - Draft assessment order passed coupled with the Notice of demand u/s 156 and followed by notice u/s 274 rws 271(1)(c) - HELD THAT - According to the provisions of Section 144C (1) AO is required to pass draft of the assessment order in case of impugned assessee. But here draft assessment order is accompanies with Notice of demand u/s 156 and followed with a show cause notice for levy of penalty u/s 274 r.w.s. 271 (1) (c) of the Act. Both Notice of demand and penalty proceedings are further followed by subsequent communication. Therefore, it is merely not an error but for all practical purposes, the AO passed the final assessment order instead of Draft Assessment order. In penultimate paragraph also AO mentions section 144 (13) of the Act. Both the draft assessment order and the demand notice are dated 30-11-2018. Now the issue is squarely covered against the revenue in case of Cisco Systems Services B.V 2023 (3) TMI 416 - KARNATAKA HIGH COURT held that it is settled that demand notice stems out of an order of assessment and it is enforceable. It meets the assessee with civil consequences. The argument on behalf of the Revenue that the demand notice was not enforced is fallacious and noted only to be rejected. Mistake which the ACIT has done in passing the final order at the stage of draft order is not curable u/s 292B. Thus draft assessment order passed coupled with the Notice of demand u/s 156 of the Act and followed by notice u/s 274 rws 271(1)(c) of the Act makes the draft order as final. Thus, the draft assessment order dated 30-11-12018 passed by ld AO is invalid and further as the final assessment order is based on an invalid order, same is also quashed. Adjustment of international transaction of payment of royalty for use of trade marks to AES - As assessee has already withdrawn grounds No 10 to 13 of the appeal, respectfully following decision of coordinate bench in 2019 (8) TMI 1011 - ITAT PUNE A.Y. 2008-09, we hold that total income of the assessee shall be the amount of returned income and added thereto amount of income agreed by the assessee in MAP proceedings.

Issues Involved:

1. General Ground
2. Time barring and validity of the order of the TPO and the AO
3. Validity of reassessment proceedings
4. Without prejudice, passing the final assessment order as against the draft assessment order
5. Transfer Pricing Grounds
6. Corporate tax grounds
7. Non grant of credit for DDT
8. Charging of interest under section 234B
9. Initiation of penalty proceedings under section 271(1)(c)

Summary:

General Ground:
The assessee challenged the computation of total income at INR 142,78,72,790 and the resultant demand of INR 13,96,46,300.

Time Barring and Validity of the Order of the TPO and the AO:
The assessee contended that the assessment order dated 30 November 2018 was time-barred under section 153 of the Act and that the transfer pricing order under section 92CA(3) dated 30 October 2018 was invalid. The reference to the TPO was questioned as it was made before the notice under section 143(2) and before the disposal of objections to reassessment, contrary to the Bombay High Court's directions.

Validity of Reassessment Proceedings:
The reassessment proceedings under section 147 were challenged as being invalid due to the absence of fresh tangible material indicating income escaping assessment. The proceedings were alleged to be initiated merely to revive original assessment proceedings that had become time-barred.

Without Prejudice, Passing the Final Assessment Order as Against the Draft Assessment Order:
The assessee argued that the final assessment order was invalid as it was based on a draft assessment order accompanied by a notice of demand under Section 156 and a penalty notice under Section 271(1)(c), which contravenes Section 144C.

Transfer Pricing Grounds:
The assessee initially contested the adjustment of INR 11,00,72,725 for payment of royalty for the use of trademarks but later withdrew these grounds following a Mutual Agreement Procedure (MAP) resolution.

Corporate Tax Grounds:
The assessee disputed the calculation of total income, the disallowance of deduction under section 80-IC for scrap sales and other income, and the reduction of interest income while computing the deduction.

Non Grant of Credit for DDT:
The assessee claimed that the credit for Dividend Distribution Tax paid of INR 4,83,38,022 was not granted.

Charging of Interest Under Section 234B:
The assessee contested the charging of interest under section 234B amounting to INR 4,05,81,440.

Initiation of Penalty Proceedings Under Section 271(1)(c):
The initiation of penalty proceedings under section 271(1)(c) was challenged.

Judgment:

Draft Assessment Order:
The Tribunal found that the draft assessment order dated 30th November 2018 was invalid as it was accompanied by a notice of demand and a penalty notice, making it effectively a final assessment order. This contravened Section 144C, as confirmed by judicial precedents from various High Courts.

Final Assessment Order:
Since the final assessment order was based on the invalid draft assessment order, it was also quashed.

Transfer Pricing Adjustments:
The assessee's acceptance of the MAP resolution led to the withdrawal of grounds related to transfer pricing adjustments. The Tribunal directed that the total income should include the returned income plus the income agreed upon in the MAP proceedings.

Other Grounds:
Given the quashing of the assessment order, other grounds of appeal were not adjudicated.

Conclusion:
The appeal was partly allowed, quashing the assessment order and directing the computation of total income as per the returned income and MAP resolution. The order was pronounced on 19.12.2023.

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